Philip Kotler: Part 2 of an interview by Bob Morris

May 17, 2015

Philip Kotler is the S.C. Johnson & Son Professor of International Marketing at the Kellogg School of Management, Northwestern University, Evanston, Illinois. He received his Master’s Degree at the University of Chicago and his PhD Degree at MIT, both in economics. He did post-doctoral work in mathematics at Harvard University and in behavioral science at the University of Chicago.

Kotler is the author of 57 books including: Marketing Management: Analysis, Planning, Implementation and Control, the most widely used marketing book in graduate business schools worldwide; Principles of Marketing; Marketing Models; Strategic Marketing for Nonprofit Organizations; The New Competition; High Visibility; Social Marketing; Marketing Places; Marketing for Congregations; Marketing for Hospitality and Tourism; The Marketing of Nations; Kotler on Marketing, Building Global Biobrands, Attracting Investors, Ten Deadly Marketing Sins, Marketing Moves, Market Your Way to Growth, and Winning Global Markets. He has published over one hundred and fifty articles in leading journals, several of which have received best-article awards.

His latest book, Confronting Capitalism: Real Solutions for a Troubled Economic System, was published by AMACOM (April 2015).

He has traveled extensively throughout Europe, Asia and South America, advising and lecturing to many companies about how to apply sound economic and marketing science principles to increase their competitiveness. He has also advised governments on how to develop and position the skill sets and resources of their companies for global competition.

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Morris: When and why did you decide to write Confronting Capitalism?

Kotler: I have always favored Capitalism as the best economic system and Democracy as the best political system. They both have the most potential for improving the lives of people. However, both systems need to be reexamined and refreshed so that, in fact, they do serve the majority of people. The first stark fact is the growing gap between the rich, the middle class, the working class and the poor. Most of the productivity gains appear to go to the top 1 percent. Most people don’t have enough income and as a result, they borrow additional money by using their credit card and they fall into high debt. The result of the growing income gap is a slower growing GDP (too few people with money to spend) and a rising tide of indebtedness.

Morris: Were there any head-snapping revelations while writing it? Please explain.

Kotler: I began to realize that each of the 14 shortcomings of Capitalism has attracted many proposals. We are not lacking solutions. We are lacking a two-party system that is willing to agree on solutions. Part of this is due to rigid ideological positioning that substitutes for really thinking about the facts and solutions.

Morris: To what extent (if any) does the book in final form differ significantly from what you originally envisioned?

Kotler: Actually, there is no difference between my original concept of the book and its current form.

Morris: There are so many serious problems in the world today. At one point, you suggest that, “in working on any one problem, such as higher minimum wages, so many other issues come into play, such as some businesses possibly closing down, thus creating fewer jobs and more unemployment and incentivizing companies to import more goods from abroad, which leads to even less employment at home, and so on.”

Morris: This seems like Whack-a-Mole problem solving. Is there a better way?

Kotler: Not really. Requiring the payment of higher wages will lead to a loss of some jobs and a raising of prices which drives companies to search for automation to reduce costs. On the other hand, those receiving higher wages will spend more (the marginal propensity to consume is close to 1 for low income earners) and this will increase demand for additional goods and services. Henry Ford had the clearest vision of why companies can actually benefit by paying higher wages.

Morris: What are the most common misconceptions about what capitalism is and [begin italics] isn’t [end italics]? What in fact is true?

Kotler: The most common conception of Capitalism is that it is an economic system consisting of privately owned businesses and large corporations that are run for profit. The profit comes from running the business efficiently and keeping the products and services up to date and competitively priced.

Morris: Of all the shortcomings of capitalism, which seems to have created the most problems? How so?

Kotler: The root cause of several of the other shortcomings is the growing income gap. Too much of the income gains go to too few people, even though all of the stakeholders worked together to make their companies successful. By failing to put enough income into more hands, the GDP grows slower and consumers manage to meet their needs by incurring high levels of debt.

Morris: Which of the causes of poverty will be the most difficult to eliminate? Why?

Kotler: One of the major causes of poverty is a lack of family planning. Governments and nonprofit organizations need to encourage poor people to use birth control so that they don’t have unexpected babies, which will only make poorer families poorer. In Thailand, a major campaign was launched to encourage the use of condoms. Over time, the average family size went from 5-7 children to 2-3 children. Another important step is to invest more money in delivering a higher education to the women in that country.

Morris: In your opinion, what is Thomas Piketty’s unique significance?

Kotler: Piketty’s did not discover the growing income gap but he gathered the numbers to prove its rising level and he offered an explanation in terms of when the return to capital exceeds the return on average growth of the economy. He went further and warned that the growing income gap will hurt the economy and even the democracy. He took the position that we need to make the income tax system more progressive and we should increase the wealth tax on estates.

Morris: About which of the dangers of economic inequality are you most concerned? Please explain.

Kotler: A country’s middle class is its bedrock. Yet the size of the U.S. middle class has been shrinking. Wages have been stagnant. We don’t have those factory jobs that paid a living wage and enabled a family to have a home where the wife did not have to work. But we sent our factories abroad and there is no likelihood of getting them back. Equally worrisome is that some managerial jobs and professional jobs (such as lawyers) which support middle class life are threatened by automation.

Morris: In your opinion, which policy for reducing the great differences in income offers the greatest promise for success? Please explain.

Kotler: I would favor three policies: raising the minimum wage to $12, closing the tax loophole where persons only pay a 15% income tax on long term capital gains (tax it at the full tax rate), and institute a progressive tax moving the highest tax rate from 39.6% to 45%. I would favor implementing these three policies in that order, starting with raising the minimum wage, but not stopping there.

Morris: Please explain how technology has been a factor in the significant reduction of jobs.

Kotler: Robots equipped with software can be designed to do repetitive jobs. All that you need in a factory is a set of dials, an expert, and a dog to keep the expert awake. We will be moving shortly to the next stage to robots with artificial intelligence who can “think.” The recent movie called Ex Machina dramatizes this next stage.

Morris: In your opinion, which social costs are companies now avoiding? How?

Kotler: Every company that manufactures something is causing some damage either to the soil or water or air. Most companies treat these as externalities. But the growing movement of sustainability calls for companies to internalize these costs. Once companies do this, they will have a strong incentive to reduce their carbon footprint.

Morris: Given your answer to the previous question, what should be done?

Kotler: Tax every company’s carbon footprint and the carbon footprint of every building and home, to incentivize people to reduce their carbon footprint.

Morris: Please explain the nature and extent of “the problem of the business cycle.” (Pages 116-119)

Kotler: There are times when a market such as housing, transportation or the stock or mortgage market keep rising and people with capital want to join in this growth. Soon the markets become overheated, partly because of the abundance of investment money and speculation. This is when the government should raise interest rates and increase the cost of borrowed money. Governments are shy about doing this because it could cause the very recession. Yet this is the best time to do this so that the inevitable recession never reaches the magnitude of the recent Great Recession.

Morris: What are the major “sources of turbulence” and why is each significant? (122-134)

Kotler: Turbulence is a condition that we all experience during a flight when the plane is bouncing around by competing air currents. By analogy, the economy may bounce around a lot because of competing currents of public moods and investments. One week everyone might be optimistic and then suddenly something happens to turn everyone into pessimists. Investment dries up and investors become risk averse. A sudden piece of good news then turns around the public mood. We think that these swings are getting much more frequent because many more global events are occurring and because the mass media amplifies their importance.

Morris: What are the basic tenets of “The Case for Individualism and Self-Reliance” (136-139)

Kotler: At one extreme is high self-interest, i.e. selfishness, the kind preached by Any Rand as a virtue. Next is self-reliance where a person prefers to solve his or her own problems with little help from government or the community. Higher up is enlightened self-interest, where a person focuses on his or her self-interest but takes into account how others are affected and may react. The other extreme is where citizens are mainly concerned with cooperating with others to build a better community.

Morris: Please share your views on lobbying at the federal and state levels.

Kotler: We need to put limits on how much an individual, group or business can spend on influencing an individual legislator or a whole set of legislators. Look at the vast sums that the NRA spends on getting all legislators to be soft on gun control. Legislators find it hard to refuse the NRA’s largess when they need contributions to their political campaign wherever they can get them. Our legislators have become a set of “whores” open to the highest bidders. The problem is that if we try to limit lobbying, we are in effect limiting free speech. At the very least, we need to get the lobbyists to register, list all the legislators they contact, how much time and money they spent, and so on. We should also require all the legislators to record every visit by a lobbyist, the amount of time and money spent, and the topics discussed.

Morris: In your opinion, what must be done [begin italics] immediately [end italics] to increase the number of jobs?

Kotler: The answer is clear. Our infrastructure of bridges, roads and ports has been given a D-level rating by many civil engineer societies. The government should shift some money from the Defense budget and hire companies to fix our infrastructure. As for non-construction workers, we need to do job retraining in those growing areas where more skilled workers will be needed.

Morris: Strengthen ecological sustainability?
Kotler: Yes, there is much work to do to protect forests from over-timbering and oceans and lakes from over-fishing. We need to encourage and reward companies that create jobs to reduce the carbon footprints of offices and buildings and homes.
Morris: In your opinion, in terms of materialism and happiness, what [begin italics] should [end italics] their relationship be?

Kotler: People who lack material wealth, who are poor, won’t be very happy. They will be obsessed with meeting their bills at pay day. And people who have an abundance of material goods are often not happy. In fact, Capitalism has a vested interest in creating new wants and making people unhappy until they acquire the next good. A person without an Apple watch is perfectly content with his present watch but when he sees his friends buying the watch, he will hanker for an Apple watch. The endless cycle of wanting, getting, and wanting again is part of the plot of Capitalism. It is the way Capitalism creates jobs. The only antidote is Buddhism that holds that people might be happier by renouncing desire rather than by striving to satisfy desire. But then how can the economy create enough jobs in a Buddhist society of
“less is more.”!

Morris: Of all the great leaders throughout history, with which one would you most want to share an evening of conversation if it were possible? Why?

Kotler: I can think of a number of people, including Abraham Lincoln, Teddy Roosevelt, and Franklin D. Roosevelt. I would settle for a conversation with Abraham Lincoln.

Morris: Let’s say that a CEO has read and then (hopefully) re-read Confronting Capitalism and is now determined to establish or strengthen a workplace culture where everyone has a much better understanding of the core principles of capitalism. In your opinion, where to begin?

Kotler: The CEO announces that the purpose of the firm is to improve the lives of the customers and the lives of the firm’s stakeholders and the quality of the planet. The company will give fair compensation to all the stakeholders and the CEO will not earn more than 20 times the median income of his employees. He will want his employees to rate him, just as he also has to rate them.

Morris: For more than 25 years, it has been my great pleasure as well as privilege to work closely with the owner/CEOs of hundreds of small companies, those with $20-million or less in annual sales. In your opinion, of all the material you provide in Confronting Capitalism, which do you think will be of greatest value to leaders in small companies? Please explain.

Kotler: I think that owners of small businesses will find dozens of ideas in the book that they hadn’t thought of, including how to reward their workers fairly and how to advocate for a wider distribution of income so that the company can attract enough customers who have the money to buy the company’s products. They will realize that hiring the best people and paying them well will increase, not decrease their profits.

Morris: Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?

Kotler: We need to take a close look at the relationship between the economic system of Capitalism and the political system of Democracy. A democracy with high concentrations of private wealth buys votes and interferes with the ability of Capitalism to perform well. It is no longer one citizen, one vote. I plan to examine the dynamics of this relationship between Capitalism and Democracy in my further research.